Question, friends. Should I expose someone who severely plagiarized my work ? Am I under obligation to do so?
via Question, friends. Should I expose… – Nassim Nicholas Taleb | Facebook.
Revision
On the Difference between Binary Prediction and True Exposure with Implications for Forecasting Tournaments and Decision Making Research
Nassim Nicholas Taleb
NYU-Poly; Université Paris I Panthéon-Sorbonne – Centre d’Economie de la Sorbonne (CES)
Philip E. Tetlock
University of California, Berkeley – Organizational Behavior & Industrial Relations Group; University of Pennsylvania – Management Department
June 25, 2013
Abstract:
There are serious differences between predictions, bets, and exposures that have a yes/no type of payoff, the “binaries”, and those that have varying payoffs, which we call the “vanilla”. Real world exposures tend to belong to the vanilla category, and are poorly captured by binaries. Vanilla exposures are sensitive to Black Swan effects, model errors, and prediction problems, while the binaries are largely immune to them. The binaries are mathematically tractable, while the vanilla are much less so. Hedging vanilla exposures with binary bets can be disastrous — and because of the human tendency to engage in attribute substitution when confronted by difficult questions, decision-makers and researchers often confuse the vanilla for the binary.
Number of Pages in PDF File: 7
Keywords: Predictions, Risk, Decision, Judgment and Decision Making, Fat Tails
working papers series
Friends, after a lifetime of dealing with a concept called Gambler’s ruin (and refinining it dynamically in “Dynamic Hedging”), it didn’t hit me that I was talking about it here, in connection with the zero-one law.
A series of finite bets, a la binary are immune to ruin if they are done right.
Let us reformat the idea of the PRECAUTIONARY PRINCIPLE (PP) within gambler’s ruin theory. The wiki page is not good, by the way as there are plenty of interpretations. The definition we can use is as follows: there is a class of dynamic strategies that never blow up, with probability 1, but they need to consist in finite bets (like binaries). And, the bad news, is that there is that will eventually lead to ruin, here ecocide and destruction, with probability 1.
We should code ruin aversion in the constitutions.
via Friends, after a lifetime of dealing… – Nassim Nicholas Taleb | Facebook.
Something people don’t realize about fat-tailed probabilities: We may accept to take risks with .00001 pct chance of blowing up the planet. May be OK for some. But the inconsistency is that we do serially and collectively take A LOT of “one-off” risk. If nothing happens, we may do it again. And again. Or we may take many of these at the same time. Merely allowing such action will eventually mean that we will have 100% chance of blowing up the planet.
Recall the principle, by Kolmogorov’s zero-one law, that eventually if you have a small chance of blowing up you end up blowing up with CERTAINTY; the planet has never blown up (in trillions of trillions of bounded variations over billions of years) precisely because it took close to ZERO risks of blowing up. Nothing beyond local variations.
This seriality is something to add to the precautionary principle. Some risks we should NEVER take.
via Something people don’t realize about… – Nassim Nicholas Taleb | Facebook.
The Science of Conjecture: Evidence and Probability before Pascal
5.0 out of 5 stars Indispensable, August 31, 2013
(Review) By N N Taleb “Nassim N Taleb”
This review is from: The Science of Conjecture: Evidence and Probability before Pascal (Paperback)
As a practitioner of probability, I’ve read many book on the subject. Most are linear combinations of other books and ideas rehashed without real understanding that the idea of probability harks back the Greek pisteuo (credibility) and pervaded classical thought. Almost all of these writers made the mistake to think that the ancients were not into probability. And most books such “Against the Gods” are not even wrong about the notion of probability: odds on coin flips are a mere footnote. If the ancients were not into computable probabilities, it was not because of theology, but because they were not into games. They dealt with complex decisions, not merely probability. And they were very sophisticated at it.
This book stands above, way above the rest: I’ve never seen a deeper exposition of the subject, as this text covers, in addition to the mathematical bases, the true philosophical origin of the notion of probability. In addition Franklin covers matters related to ethics and contract law, such as the works of the medieval thinker Pierre de Jean Olivi, that very few people discuss today.
via Amazon.com: N N Taleb “Nassim N Taleb”‘s review of The Science of Conjecture: Evidence and Pr….
HatTip to Dave Lull